Employers Given a Break on Payroll by the IRS

Ever wonder if the business you work for considers you an employee or an independent contractor on the payroll?

For several years, businesses have been labeling some of there workers as independent contractors rather than employees of the business, which will lead to the Internal Revenue Service coming after them when it comes to payroll. However, in mid September the IRS has decided to give these employers a break.

The IRS has designed a new program which will allow these employers to make a small payment to cover past payroll taxes as well as reclassifying there workers to prevent this from happening in the future.

So, how exactly to you determine if a worker is an independent contractor or an employee of the business? The correct determination of a worker depends primarily on how much control and authority the employer has over its worker. Examples of an independent contractor could be an engineering consultant or a private investigator.

Now, you may be wondering why a business would classify a worker as independent contractor rather than employee. There is one main reason why a company would do this and that is it can save a company some money, some companies can even save up to 30% off their labor costs.

With this new program in place employers will now owe about 1% to the reclassified employees with no penalities. In order for a company to be able to participate in this new program a company must consistently represented actual employees as independent contractors for the past three years and can not be currently having a state or federal audit done.

The IRS intends for this program to be open to all companies no matter the size, however the expecting most of the applicants to be smaller businesses because they don't as strict a structure as the larger companies do.

Officials from the IRS, the Labor Department, and seven states around the country are working together to get this program under way. Currently the Labor Department is already investigating the home building industry where subcontractors often handle the work for the big builders in that industry.

This could present a larger issue in months to come because many employer's do not know how to properly classify their employees and that is why many of the employee's are misclassified.